Chapter 9
Pricing Construction Equipment
Objectives
Upon completion of this chapter, you will be able to:
Identify the three main equipment categories and describe how each is priced in an estimate Explain the relative advantages of renting rather than owning construction equipment
Objectives (contd.)
List and describe the types of expenses that should be accounted for when calculating the ownership cost of equipment Calculate depreciation allowances for construction equipment Calculate maintenance and repair costs on an item of equipment
Objectives (contd.)
Calculate equipment overhead costs Calculate fuel and lube oil costs on an item of equipment Determine the hourly ownership cost and develop the rental rate for an item of equipment
Introduction
Categories of plant, equipment and tools
Hand tools Larger equipment
Usually shared for activities
Items for specific tasks
Pricing calls for unit prices:
Hourly, weekly, and monthly rates
Renting versus Purchasing Equipment
Determine if investments are justified
Rental advantages:
Large inventory does not need to be maintained Continuous access Little need for storage Reduced maintenance Simple accounting for costs Insurance savings
Renting versus Purchasing Equipment (contd.)
Full ownership cost aspects:
Depreciation expenses Maintenance and repair costs Financing expenses Taxes and insurance costs Storage costs Fuel and lubrication costs
Depreciation
Decline in asset market value
Methods:
Straight-line: allocated equally per year over useful life of the asset Declining-balance: annual depreciation amounts decline as asset gets older Production or use: depreciation value in a specific year depends on asset use in that year
Maintenance and Repair Costs
Cannot be ignored when considering ownership costs
Good maintenance:
Can extend equipment life Reduces costs
Calculated as a percentage of annual depreciation costs for each item
Financing Expenses
Interest expense: cost of using capital
Cash used:
Amount that would have been earned if money was invested elsewhere (i.e., forgone interest revenue)
Financed by loan:
Interest charged on the loan
Taxes, Insurance, and Storage Costs
Significant variations
When known: should be added into annual ownership costs calculation When not known: calculated as percentage of average annual investment cost
Equipment overhead rate
Combination of interest expense rate, tax rate, insurance, and storage costs
Fuel and Lubrication Costs
Consumption can be closely monitored
Assess to information: accurate future predictions No access: can be predicted
Engine type and size Engine operating factor: load assessment
Equipment Operator Costs
Operating engineer
May be included in agreement Usually not included
Labor costs for operating equipment
Apply engineers hourly wage with equipment hourly rate
Use expected productivity to determine price per measured unit for labor and equipment
Company Overhead Costs
Fixed costs associated with running a business
Full rental rates should include an:
Amount for company overhead costs Amount for profit
Use of Spreadsheets
Used due to repetitive nature of calculations
Ownership costs: large numbers of equipment Convenient updating of data Readily set up to provide basic format
Summary
Categories of equipment and how they are priced:
Hand tools: percentage of labor price On-site equipment used intermittently: general expense item Equipment used for specific tasks: priced directly against the takeoff items
